Tom Petters Ran $3B Ponzi Scheme, Suit Says

DALLAS (CN) – SSR General Partners lost more than $24 million in a $3 billion Ponzi scheme run by Tom Petters, the fund manager claims in a lawsuit against several hedge funds and their auditors.

SSR’s two funds – Strategic Stable Return Fund (ID) and Strategic Stable Return Fund II – invested money in four hedge funds: ArrowHead Capital Partners II, Palm Beach Finance Partners, Palm Beach Finance II and Stewardship Credit Arbitrage Fund. SSR says these defendants invested all or most of their funds with Petters. “Petters gave the hedge fund defendants purchase orders for high-end electronic merchandise ostensibly from ‘big box retailers’ such as Sam’s Club and Costco Wholesale,” SSR claims. It claims the hedge funds earned fees for soliciting investors to take out loans through Petters. These promissory notes or loans were supposedly secured by the inventory, accounts receivable and credit insurance, the lawsuit states. SSR says Petters claimed he was buying the merchandise at a discount from manufacturers who were overstocked or were liquidating excess merchandise. Petters allegedly said he would store the merchandise in warehouses and then sell them to other retailers, using the profits to repay the hedge fund loans with interest. “The only problem with this investment plan was that Petters never actually purchased any merchandise or resold any merchandise to any retailers,” the suit claims. “Any loan payments he made were made with other investors’ money.” The auditor defendants include McGladrey & Pullen, Kaufman Rossin & Co., and various branches of Ernst & Young. The plaintiff accuses them of failing to catch or warn investors of the massive fraud. Petters was the CEO of Minnesota-based Petters Group Worldwide, a holding company that owns Sun Country Airlines and Polaroid, among other assets. He resigned in 2008 federal authorities seized documents from the company, its top executives and several associates as part of an investigation into the alleged Ponzi scheme. Petters has since been indicted on 20 counts of wire and mail fraud, conspiracy and money laundering. Due to the investigation, he was unable to extend operating loans to Sun Country Airlines, resulting in the airline’s filing for bankruptcy protection in October 2008. The plaintiff is represented by Guy Hohmann with Hohmann Taube Summers of Austin.